Royal Ins. Co. v. Ward

• Decision Date: 09 February 1934
• Citation: 68 S.W.2d 9,252 Ky. 687
• Parties: ROYAL INS. CO. v. WARD et al.
• Court: Kentucky Court of Appeals

68 S.W.2d 9

252 Ky. 687

ROYAL INS. CO. v. WARD et al.

Court of Appeals of Kentucky

February 9, 1934

Appeal from Circuit Court, Graves County.

Suit by W. F. Ward and the Young Men's Building & Loan Association against the Royal Insurance Company. Judgment for plaintiffs, and defendant appeals.

Affirmed as to the Young Men's Building & Loan Association, and reversed with instructions to grant a new trial as to W. F Ward.

Holifield Gardner & McDonald, of Mayfield, and D. H. Hughes, of Paducah, for appellant.

Webb &amp Webb, of Mayfield, for appellees.

DIETZMAN Justice.

On January 25, 1932, the appellee W. F. Ward insured his residence in Mayfield, Ky. with the appellant which issued him a policy in the principal amount of $3,800, with a rider attached styled "Standard Mortgage Clause" in favor of the appellee Young Men's Building & Loan Association which at that time held a mortgage on this house and the lot upon which it was located. Among other things, this "standard mortgage clause rider" provided: "Loss or damage, if any, under this policy shall be payable to Young Men's Building and Loan Association, mortgagee, as interest may appear, and this insurance as to the interest of the mortgagee only therein shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property *** provided that in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee shall on demand pay the same. *** The company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee for 10 days after notice to the mortgagee of such cancellation and then cease." This rider also provided for the right of subrogation under certain conditions in the event the insurer paid the mortgagee a loss under the policy. In June, 1932, the residence was burned. Physically a large proportion of it survived the fire. Thereafter Mr. Ward and the appellant through its adjuster took up the question of adjusting the loss. The appellant procuring the bids of reputable lumber dealers and contractors in Mayfield to repair the loss took the position that such repair would not exceed $1,700, whereas Mr. Ward, relying on an estimate given him by E. L. Riley of Memphis, Tenn., insisted that the loss could not be repaired for as much as $2,500. On this difference in the estimates, Ward and the appellant split. Thereupon, relying on a clause in the policy which provided that in the event of disagreement as to the amount of loss the same should be ascertained "by two competent and disinterested appraisers, the insured and this company each selecting one and the two so chosen" selecting an umpire, the appellant gave notice to Ward of its election to arbitrate and appraise the loss. This it had a right to do. Continental Insurance Co. v. Vallandingham & Gentry, 116 Ky. 287, 76 S.W. 22, 25 Ky. Law Rep. 468, 105 Am. St. Rep. 218. Ward, taking the position that because his building had been so damaged by the water used in extinguishing the fire as well as by the fire itself that it could not be put back in the condition in which it was prior to the fire, asserted that his loss was total and hence there was nothing to appraise under the valued policy statute. Ky. St. § 762a-22. He declined to enter into an arbitration or appraisement. The appellant claims that about the time it notified Ward of its election to arbitrate and appraise it also verbally so notified the mortgagee. This the mortgagee denies. The appellant declining to settle the loss, this suit was brought by Ward and the mortgagee to recover the full amount of the policy on the theory that the loss was total. The appellant defended on the ground that the loss was not total but only partial, and that it had called for an arbitration and appraisal as it had a right to do if the loss were partial, and Ward had declined to enter into such arbitration and appraisal. Subsequent pleadings presented the issue as to whether or not the mortgagee had under the policy also to be notified of the appellant's election to arbitrate and appraise; it being the appellant's position that the mortgagee was entitled to no such notice and Ward's and the mortgagee's position that it was. The appellant averred though that, if the mortgagee was entitled to notice, it had had such notice. This in turn was denied by the mortgagee. On these issues the parties went to trial. Evidence bearing on the proposition as to the extent of damage done the building and whether or not the mortgagee had had any notice of appellant's election to arbitrate and appraise was produced by the parties. The case was then submitted to the jury, first, on a peremptory instruction to find for the appellees in the full amount of the policy if the jury thought the loss were total, but, if not, then to find for the appellees in the event the jury was of the opinion that the mortgagee did not have notice of appellant's election to arbitrate and appraise and in such event to find for the appellees the difference in value of the building just before and just after the fire. Under these instructions, the jury found a verdict in favor of the appellees for $3,500, thus finding that the mortgagee had no notice of appellant's election to arbitrate and appraise, and from the judgment entered on that verdict this appeal is prosecuted.

The appellant first directs its attack on the judgment at the proposition assumed by the court below and supported by the appellees that the mortgagee under this policy was entitled to notice of the appellant's election to arbitrate and appraise, and that, if the mortgagee did not receive such notice, the appellant had no right to such arbitration and appraisal as against any one. The appellant, relying on a line of decisions based on what may be denominated "the open mortgage clause" as distinguished from "the standard mortgage clause," insists that the mortgagee under a loss payable provision is but the nominee or agent of the insured to receive such portion of the insurance money as may be represented by the unpaid mortgage debt, and that such mortgagee stands or falls with the insured in the construction and application of the provisions of the policy as to the insured. Without examining or testing the soundness of the appellant's position in this regard, we pass at once to a consideration of the distinction between "the standard mortgage clause" and "the open mortgage clause." This distinction is thus expressed in the case of Hartford Fire Ins. Co. v. Bryan, 244 Ky. 61, 50 S.W.2d 74, 75:

"The loss-payable clause to a mortgagee may or may not constitute an independent contract with him. Many policies contain what is called a 'standard clause' or 'union clause,' which in effect stipulates that the mortgagee's interest shall not be invalidated or affected by an act or breach of condition by the mortgagor or owner. Others, like the one now before us, do not contain such a provision, but do contain what is called an 'open-mortgage clause,' and under the indorsement of a loss-payable provision the mortgagee is regarded simply as the appointee of the insured owner, and the effect is merely to direct payment of the proceeds according to his interests. So that all express stipulations and all the conditions of the policy are applicable to the mortgagee. No different or additional legal burden is placed on the insurer by virtue of the loss-payable clause. The mortgagee's indemnity is at the risk of every act and omission of the mortgagor; his right is no greater, and the owner's breach

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